From Texas, I mostly cover the energy industry and the tycoons who control it. I joined Forbes in 1999 and moved from New York to Houston in 2004. The subjects of my Forbes cover stories have included T. Boone Pickens, Harold Hamm, Aubrey McClendon, Michael Dell, Ross Perot, Exxon, Chevron, Saudi Aramco and more. Follow me on twitter @chrishelman.

10/05/2011 @ 5:17PM129,322 views

The Two Sides Of Aubrey McClendon, America's Most Reckless Billionaire

Before we sit down to a dinner of steak and fries, billionaire wildcatter Aubrey McClendon handles the wine bottles arrayed on the table of Oklahoma City’s well-worn Deep Fork Grill. “This one’s okay, a $10 wine. Here’s another $10 wine.” He grins: “It’s up to you, Chris: We can drink cheap wine, or we can drink good wine.”

McClendon’s proposition was rhetorical. He co-owns the restaurant and had already picked the wine, which was decanted two hours ahead of time. Only the royal stuff: a 1989 Petrus, a 1989 Haut Brion and, conspicuously, a 1982 Lafite Rothschild. Easily ten grand worth of tipple.

Erudite and confident, with rimless glasses pinned to a face that looks far younger than his 52 years, McClendon is charming. And he’s not shy about spending money. Professionally, he’s combined those attributes to stunning effect, building Chesapeake Energy into the nation’s second-biggest producer of natural gas after ExxonMobil, pumping 3 billion cubic feet per day out of the 13.7 million acres it controls—a landholding roughly equivalent to West Virginia.

The more time you spend with ­McClendon, the more your head spins, less with classy spirits than dazzling stats. Chesapeake boasts a $17 billion market cap, on track to generate $2 billion in profits on $9.5 billion in revenues. It employs 12,000 people, not including 4,500 land scouts scouring every acre of America for drilling potential and added 3,300 employees so far this year. FORBES estimates McClendon’s personal fortune exceeds $1.2 billion, including his 2.5% personal stake in nearly every Chesapeake well, real estate and 19% of the NBA’s Oklahoma City Thunder, which he helped move from Seattle to his hometown amid much acrimony. He is without a doubt the most admired—and feared—man in the U.S. oil patch.

But he’s also the most reckless, the alpha wildcatter with an off-the-charts risk tolerance. It proved nearly fatal in 2008, when extreme leverage, aggressive financing and plunging oil and gas prices combined to crush Chesapeake shares by 80%. McClendon was forced to sell nearly all of his own shares to meet margin calls. The company had to write down billions.

Even as Chesapeake has rebounded heroically, acquiring and ­developing vast new shale formations responsible for boosting gas supplies to alltime highs, I’ve been critical of McClendon, called him everything from dangerous to overpaid and suggested that the company he built would fare better without him.

Determined to show otherwise, McClendon, who maintains that “a key to success in any walk of life is having a short memory and a thick skin,” responded with the Bordeaux-fueled charm offense. He threw open the doors of Chesapeake, making available two dozen executives—the chief operating officer, general counsel, senior engineers, the pipeline chief, even Chesapeake’s athletic director—as well as the mayor of Oklahoma City, the former state attorney general and the architect who helped design Chesapeake’s beautiful campus. We took a helicopter out to a drilling rig. We filled up an SUV at a compressed natural gas station. Chesapeake even unilaterally moved me to a nicer hotel downtown (FORBES picked up the tab, of course).

He may have changed my room, but McClendon didn’t entirely change my view of his company. What’s impressive: He got off the mat to lead the charge of America’s natural gas revolution. What’s troubling: McClendon doesn’t seem to have learned from his near-death experience. (See also “In His Own Words: Aubrey McClendon Answers 25 Questions“)

McClendon could have had an easy life in the energy business. His great uncle Robert Kerr, a governor of Oklahoma, founded oil giant Kerr-McGee; his dad became an executive there. But after graduating from Duke with a major in history, a minor in accounting and a short stint watching a more-entrepreneurial uncle crash out during the 1982 oil bust, McClendon set out on his own as a landman. The lowest level of oil-business dealmakers, landmen scout acreage, figure out who owns the mineral rights and then lease it, paying the owner a bonus plus the promise of a royalty.

After too many bidding wars with another young landman, Tom L. Ward, the 23-year-olds threw in together, and in 1993 Chesapeake went public. (Ward split with McClendon in 2006 and started his own company, SandRidge Energy. Ward sidesteps questions about disagreeing with McClendon: “I have no doubt they know what they’re doing. They’re a smart management team.”)

Through the 1990s Ward and McClendon gobbled up land across Texas and Louisiana and utilized new horizontal drilling techniques. But they mostly came up dry—a huge problem when oil and gas prices slumped, especially as they were wildly leveraged, with debt levels exceeding assets. By the end of the decade company shares had lost 90% of their value.

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Promote natural gas as a replacement for petroleum in transportation where it enjoys a huge price and technical advantage over petroleum.

Promote solar thermal use, and let natural gas be more in competition with petroleum maximizing its price advantage.

Promote the use of natural gas as an electrical energy source through the use of catalytic converters. By contracting large lots of catalytic converters, he can compete directly with electrical utilities, without having any of the capital overhead of generation, maintenance, transmission, and delivery. He can become an electric utility by simply contracting to lease electrical production on site with the use of catalytic fuel cells. The fuel cells could be either leased and maintained or sold with a range of options and financing.

Get into the area of production of biomethane. There is no risk involved in making biomathane. It has been done for thousands of years and the results are well known and dependable. To cut costs of methane use, take the risk out of production by eliminating the risk of drilling dry or under producing holes. Once set up—methane production by means of anaerobic digestion never decreases. There is no need to worry about production falling because of dwindling supply from existing sources.

My name is Lindsay McIntyre and I work for Chesapeake. Thanks for your interest in promoting the use of natural gas. In response to your comment, I wanted to direct you to a press release outlining Chesapeake’s plan for transforming our country’s transportation fuels market and reducing foreign oil imports. I thought you’d find it interesting.

But the stock is a sell: Chris: One way to get behind the company using “full-cost” accounting instead of successful efforts” accounting is to look at sales-per-assets. The quarterly results on a year-over-year comparison are not bullish (perhaps explaining why stock is down 20% past month): Sales/ Quarter assets $ 0.26 11-Jun 0.24 11-Mar 0.25 10-Dec 0.28 10-Sep 0.27 10-Jun 0.28 10-Mar 0.26 9-Dec 0.28 9-Sep 0.46 9-Jun

Frankly, I was disappointed in your article and companions pieces. I had to double check to confirm you were the author. It strikes me that the wine and helicopter ride served their intended purposes. To me a very apparent difference in your writing style and opinion when comparing this article to your previous pieces about CHK. But while you enjoyed your “tour” there are still many landowners that are not receiving fair dealings with Chesapeake. For anyone interested, just search the Internet for Chesapeake lawsuits and they will be found in abundance. So Chris, I think you may have had wine goggles on during this assignment.

oh boy, I have a feeling you may have lost a little of your credibility Chris after this article (definitely have with me). I am willing to bet that this is a first for you; Chesapeake has actually posted YOUR article on ITS website. tsk tsk tsk…